Springhouse Solicitors

Financial penalty for employee possible

Was the employer legally entitled to charge an employee an amount of money for not working their notice, in addition to not paying them for his time?

Yes, according to the Employment Appeal Tribunal in Li v First Marine Solutions Limited.

Background

Miss Li was employed in a senior position as a principal engineer for First Marine. She resigned without giving her 1 month’s contractual notice.

Her contract stated that, should she leave early, she would pay the company an amount of money equivalent to her salary over the period not worked.

She left a month early, and therefore, in addition to not being paid for this period, was charged a month’s salary (£5,000) by the company.

She tried to persuade the Appeal Tribunal that this amounted to an unenforceable ‘penalty’ clause. The Tribunal disagreed, as that this was a ‘genuine pre-estimate’ of the company’s losses i.e. the additional cost of recruiting a replacement engineer at short notice.

The Appeal Tribunal’s reasoning largely focused on the seniority of the employee. Because this employee was senior, the employee and employer could foresee that significant cost would be incurred by the company in making a speedy replacement. The financial repayment part of the contract was therefore a genuine pre-estimate of the company’s loss.

Implications for businesses

Businesses should consider amending their contracts so that they have the power to easily recover money from senior employees resigning early in breach of contract.